Flat Rate VAT for VATable £60k income and NonVatable £250k income

[Mike App]

Hi there,

I have an app which has generated an income of around £250k in the last year. The income of which comes from Ads from the US and is not liable for VAT.

I also consult my services in the UK to UK companies to which I make around £60k which is VATable.

When I started the business one year ago, I enrolled to the Flat Rate scheme.

Now my turnover is over the threshold of point 12.2a of VAT Notice 733.

12a) At the anniversary of your start date your total income (including VAT) in the year then ending (excluding sales of capital assets) is more than £230,000.

So does this mean I have to leave the scheme, even though my UK VATable income is much less than £230,000?

Am I correct here? Thanks for your help in advance.

[les35]

The £230,000 limit is total business income, so includes your non-UK sales. You must therefore leave the Flat Rate Scheme.

[robbob]

Les

The £230,000 limit is total business income, so includes your non-UK sales. You must therefore leave the Flat Rate Scheme.

Apologies for being argumentative here but are you 100% sure on this Les?
I looked at notice 733 and find the guidance in section 12.2 is somewhat sketchy
The reason for thinking that it may be the opposite is as follows.

with regard to joining the scheme things are slightly clearer

3.1 Who can join?
your taxable turnover (excluding VAT) in the next year will be £150,000 or less

If we then decamp over to the advise with regard to what is excluded from vat taxable turnover
https://www.gov.uk/vat-registration/calculate-turnover
it says

exclude VAT-exempt sales, and goods or services you supply outside of the UK.

So if we take the basis that services supplied to USA are outside the scope of vat and ignored for joining the scheme calculations it would seem inconsistent to then include these sales when it comes to deciding whether to leave or not - although the higher leaving threshold means that it may well be deliberately inconsistent.

Rather annoying that despite a re-write of the 733 guidance just last month they can't be clear and explicit with regard to their advise.

Personally if i were the OP and had the slightest doubt i would write to the vat office and ask for confirmation as to whether the services supplied to USA being outside scope of vat sales are ignored with regard to eligibility to stay on the scheme if other total sales is below 230k

[Mike App]

Thanks robbob and Les. I guess the only way to be sure is to take robbob's advice and write to HMRC to request clarification and subsequently leave the scheme if they advise.

Thanks again!

[les35]

One of the features of the Flat Rate Scheme is that the conditions for removal from the scheme do not exactly mirror-image the conditions for joining the scheme. I am not sure of the logic of that, but that is the legislation.

[Mike App]

Recieved a reply from HMRC.
I can't seem to understand if they're saying if I can stay on the scheme or have to leave.

---Message---

I understand that you have read our guidance regarding use of the Flat Rate Scheme and you have requested clarification as to whether sales of services to customers outside the EU should be included in your Flat Rate turnover. I therefore again draw your attention to section 6 of VAT Notice 733, Flat Rate Scheme for Small Businesses, which states that when calculating the Flat rate turnover you must include all taxable supplies (including supplies at the zero rate), but would exclude supplies of services that take place outside the scope of VAT.

Therefore when calculating your Flat Rate turnover, sales of services made to customers outside the EU should not be included.

You are however reminded that when determining if you should leave the scheme, as also noted in section 12.2 of the above notice : your total income is determined by the value of invoices you have issued when using the basic turnover method or the actual payments you have received when using the cash based turnover method.

If the transaction is not as described above, or any assumption I have made is incorrect, this advice will not apply. Please ensure you familiarise yourself with any VAT Notice or published guidance to which I have referred.

--End Message--

Any help would be much appreciated.

[les35]

Not very clear reply from HMRC, but they do seem to be saying that all turnover is included when reviewing eligibility for remaining in the scheme. That is the corrct legal position.

[robbob]

Mike App

Can you post the contents of the letter you sent to them?